DOJ Tweaks Verizon Deal To Buy Spectrum From Cable Companies So Consumers Still Have A Few Choices

As we wrote earlier this month, Verizon Wireless’ proposed purchase of billions of dollars worth of wireless spectrum from Comcast, Time Warner Cable and other cable companies that aren’t using it anyway, could result in fewer cable and Internet provider options for American consumers. Well, it looks like the Dept. of Justice was listening to at least some of the concerned voices, as it has given its approval to the deal — but not without some significant changes.

At the heart of the controversy is the portion of the deal that creates marketing partnerships between Verizon Wireless and the cable companies that would push bundled cable/Internet/wireless service to customers.

Opponents believe that this arrangement would take away any incentive for Verizon to continue building out its FiOS fiber TV/phone/Internet service in areas that are dominated by Comcast, TWC, Cox and the other cable companies involved in the deal.

“On the one hand, Verizon will have committed its capital expenditure to its wireless division, not FiOS,” wrote Boston Mayor Thomas Menino in a letter to the DOJ and the FCC. “[O]n the other hand, Comcast will essentially partner with its competitor, thereby removing any threat to its existing infrastructure.”

In today’s announcement, the DOJ seems to agree.

“[I]f left unaltered, the agreements would have harmed competition by diminishing the companies’ incentive to compete, resulting in higher prices and lower quality for consumers,” reads a statement from Justice. “Verizon and the cable companies are direct competitors in many local markets throughout the United States where Verizon offers video, voice and broadband service. The series of commercial agreements between Verizon and the cable companies would have threatened this competition. Most notably, the agreements, as originally structured, would have required Verizon Wireless to sell the cable companies’ services on an ‘equivalent basis’ with FiOS where FiOS is available, thereby reducing Verizon’s ability and incentive to sell its own services aggressively.”

Under the DOJ’s proposed settlement, Verizon Wireless would be forbidden from selling cable company products in areas where FiOS already exists. It also removes contractual restrictions on Verizon’s ability to sell FiOS, so that Big Red can continue to market its own product as aggressively as it chooses to.

The proposal also puts a December 2016 time limit on Verizon Wireless’s ability to resell the cable companies’ services to customers in areas where Verizon sells DSL Internet service. The intention here is to preserve “Verizon’s incentives to reconsider its decision to stop building out its FiOS network and otherwise innovate in its DSL territory.”

Among other proposed changes to the deal:
* Verizon retains the ability to sell bundles of services that include DSL, Verizon Wireless and the video services of a direct broadcast satellite company;

* After five years, the cable companies are no longer barred from selling the wireless services of Verizon Wireless’s competitors, and may partner with other wireless providers.

“The Department of Justice’s conditions will help to make these joint marketing agreements work better for consumers. But moving forward, it is critical that enforcement of these conditions is vigilant,” said Parul P. Desai, policy counsel for Consumers Union. “Today’s deal between two giant industries is still troubling. At best it protects the status quo for consumers. It is hard to see how this improves competition or increases consumer choice in a market landscape already dominated by wireless duopolies and cable/internet monopolies.”

The deal is still subject to the approval of the FCC, but in a statement released this morning, FCC Chairman Julius Genachowski wrote, “[I]n light of the Consent Decree the companies executed with the Justice Department today, I believe the Commission should now approve this transaction, and I will be circulating a draft order to my colleagues that would do so.”